DOCUMENT RESUME

ED 277 861 CE 046 102

AUTHOR Ryan, Jim
,-.TITLE Overview of the Financial Char:acteristics of U.
Farms, January 1, 1986.
.1NSTITUTION Economic Research Service (DOA_), Washington, D.C.
. REPORT NO ERS-SR-AGES861113
.,..pUB DATE. Dec 86
.. NOTE. 20p.
PUB TYPE Reports - General (140)
.-BDRS -PRICE MF01/PC01 Plus-Postage.
DESCRIPTORS Agricultural Production; Credi-t (Finance); *Economic
Climate; Sconomic Factors; *Bcdonomic Status;
*Farmers; Financial Policy; *IPLnancial Problems;
*Government Role; Income; *Loam Repayment;
Retrenchment; Tables (Data); T3rend Analysis
IDENTIFIERS *United States
ABSTRACT
Although 1985 was a relatively high-income year for
agriculture, the farm sector is still under a fareat deal of financial
stress. High direct government payments and inccreased Commodity
Credit Corportion loans improved the cash incomne of U.S. farmers in
1985. However, the continuing decline in real 4mstate values reduced
farmers' asset and equity levels. This erosion of asset values has
exposed both farmers and the institutions that provide them credit to
an increasing level of risk. Financial difficuMties of farmers
throughout the country varied widely, with famaly-sized commercial
farms and Midwestern cash grain farms experienc=ing the greatest
stress. Lake State, Corn Belt, and Northern Plexins farms held nearly
54 percent of all farm debt. Nationwide, highlsr leveraged farms (with
a debt/asset ratio greater than 0.4) owed almosst two-thirds of all
farm debt. Total debt, however, declined by over $7 billion as
lenders appear to be continuing to impose crediLt restraint on their
borrowers and encourage them to reduce their deL-blt and limit their
capital spending. Thus, while government purchakses and direct
payments, accompanied by tight cost control memsures, have allowed
many of these producers to maintain a cash flowir adequate for their
obligations, continued federal government invoi_vement may be
necessary as the sector adjusts to lower commodrity prices and
possibly further declines in asset values. (MN)

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from the Original documem-t.
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 United States
Department of
Agriculture Overview of the
Economic
Research
Service Financial
National
Economics
Division
Characteristics of
U.S. Farms
January 1 1986
rJ Jim Ryan

U.S. DEPARTMENT OF EDUCATION

Ofl or Educational Ressircli sad Iffloctivement
'RONAL RESOURCES INFORMATION
CENTER (ERIC)
This document has Peen reproduced as
organization
received feanN the persOn or
origin*ling it
been made to improve
0 Min Or Change' have
reproduction quality.
Wilted in this laccu-
Points Of v WYE oopInIOfl5
rtient do not necessarily represent official
.

OERI position or ColicY.

BEST Copy AVAILABLE

OVERVIEW OF THE FINANCIAL CHARACTERISTICS OF U.S. FARMS, JANUARY 1, 1986.
By Jim Ryan, National Economics Division, Economic Research Service, U.S.
Department of Agriculture. ERS Staff RepOrt No. AGES861113.

ABSTRACT

High direct Government payments and increased Commodity Credit Corporation

loans improved the cash income of farmers in 1985. The continuing decline
in real estate values reduced farmers' asset and equity levels. Financial
difficulties varied widely. Family-size commercial farms and Midwestern
cash grain farms experienced the greatest stress. Farms in the Lake States,
Corn Belt, and Northern Plains held almost 54 percent of all farm debt.
Nationwide, highly leveraged farms (debt/asset ratio greater than 0.4) owed
almost two-thirds of all farm debt. Total debt declined by over $7 billion.

KEYWORDS: Assets, balance sheet, cash flow, debt, Farm Costs and Returns
Survey, f nancial stress, insolvency, region, sales class, type of farm.

************************ **********
* This report was reproduced for limited distribution to the research
* community outside the U.S Department of Agriculture.

**** *****************

1301 New York Avenue, NW.

Washington, DC 2005-4788 December 1986
 PREFACE

This report summarizes financial data a variety of sources. Foremost,

it provides a synopsis of:

FINANCIAL CHARACTERISTICS OF U.S. FARMS, JANUARY 1, 1986. National Economics

Division, Economic Research Service, U.S. Department of Agriculture.
Agriculture Information Bulletin No. 500. August 1986.

The author thanks numerous colleagues for their reviews and criticisms.
Duane Hacklander, Mitch Morehart, Greg Hanson and Mike Salassi provided
especially valuable insights. For further information call Jim Ryan at
(202) 786-1798.

CONTENTS

Summary

Introduction... . ..

Net Cash Income.............

Net Cash Flow ........... ........................... .... ........

Net Farm Income

Balance Sheet

Distribution Issues 6

Agricultural Cred,_ Prospects . 4 .... 4 . "ea". ........... 0 12

Conclusions 14

iii

4
 ARY
Traditional measures'
L5nditions yield a mixed review of
sector performance --tor recorded a relatively high nominal
income level, as ne,L nf"-:eased and net farm income declined.
Total farm debt det.LTi,, "ver $7 billion during the year, suggesting
that many farmers as any el r.,L c_sh to pay off debt.
The continuing
decline in land vele, a aati-oetde average of 12 percent in 1985) resulted
in deteriorated at,x: itud ,St-Kry positions
for most farmers. Almost 45
percent reported anGode insurz_lient to cover production and family
expenses for the ,yevr- living
40 percent of all operators with no outstanding
debt are feeling el' AL fiy :4:ttle financial
stress.
Generally icwer prize!: cLid fluctuating yields
contributed to widely varying
financial difficulties exprienced by individual operators.
commercial farms (eales htween $40,000 and $500,000), Family size
cash grain and
general crop farms, and farms in the Corn Belt,
Lake States, and Northern
Plains, reported a disproportionate share of debt held by highly leveraged
farms (debt/asset ratios greater than 0.4).
Aided by continued support
from government commodity payment and loan programs,
a larger proportion of
operations in the Upper Midwest generated positive cash flows,
them to meet financial obligations, including enabling
on debt. principal and interest payments

Declining asset collateral values have placed lenders at higher

risk.
The Farmers Home Administration's farm loan portfolio had the
highest
percentage of highly leveraged operations. Farms in the Corn Belt, Lake
States, and Northern Plains held almost 54 percent of all debt in 1985.
These regions have experienced the greatest decline in
land values in
recent years, suggesting potential problems for lenders in the future.

iv
 .0v!ierview of the Financial
-Characteristict of U.S. Farrie
January151986
Jim Ryan

INTRODUCTION

During the last fes.7 years, many farmers have experi need financial difficul-
ties. Lower commo-dity prices, reduced farm exports and declining values
of farmlamihave p aayed a large role in the financiEl performance of farm
businesses. Tradi -clonal measures of farm sector conditions yield a mixed
review of sector p-iarformance in 1985.

.NET CASH INCOME

Jr!,

Fr m the vieWpdrit of current financial liquidity, the farm sector improved

in 1985. Lower prwraduction' expenditures, high crop production levels, and
continued support from Government commodity program payments and loans
combined to generazze record high net cash income (cash income minus cash
expenses) (fig. 1) Government programs contributed more than $19 billion
(43 percent) in eah support to the record $44 billion net cash income.

NET CASH FLOW

Net cash flow of title farm sector is another indicator of resources available
to meet current ob=3Litgations. It measures the exchange of funds between the
farm sector and otier sectors of the economy. Adjusting net cash income to
reflect changes in loans outstanding, changes in the liquid reserves of
operators, net rent= to landlords, and capital expenditures for the year
resulted in an annLaAal net cash flow that declined by almost $7 billion in
1985 (fig. 2), to ALts lowest level since 1977. Increased net cash income
was offset by a laimrge drop in the value of loans outstanding. The reduction
in loan balahees dereases funds available to farmers now, but should
strengthen future M-ricome and cash flow positions by reducing interest
expenses. Capital expenditures declined for the sixth consecutive year.
Reduced capital expaenditures improve current cash flows, but indicate that
machinery and equim.ruent are not being replaced. This has implications for
future production apacity.

NET FARM INCOME

Net farm income is the r7Aest and most widely recognized farm sector per-
formance measure. It estimates the net value of production during the

-1-
 inal Net Cash Income. 2-85

81 1 l Lon do/ lora

513-

Figure 2--Nst Cash Flaw. 1982-85

Billion
50

-2--
 o.lnaI Nat Farm nem.. 1

calendar year, with net cash income adjusted to reflect

changes in inventories,
depreciation of capital stock, and the value of nonmoney
items. Even though net cash income income and expense
was at record levels in 1985, net farm
income declined by $2.2 billion (fig. 3). This decline stems from
in inventories and the nonmoney component of the income reductions
statement. While
net farm income was down from 1984's record high, the 1985 total
was still,
in current dollars, one of the largest ever by the farm sector.
net farm income level was achieved, despite reduced export levels The high
and
declining farm prices, by increased domestic marketings,
support, and reduced operating expenses. Government program

BALANCE SHEET
The balance sheet provides information about the composition
of farm assets
and debts at a certain time (fig., 4).
Farm sector equity is the difference
between assets and liabilities. Equity provides a measure of
Is what remains if assets of the sector are sold and used solvencyequity
debt:. to pay off existing
Total farm sector debt declined by over $7 billion in 1985.
By
itaelf, this reduction should have improved the equity
sector. However, it was:more than offset position of the farm
by a continued decline in farm
asset'values Land values decreased for the fifth consecutive year.
peakingin 1981,:the nationwide average value of farm real Since
estate has
declined 29 percent (fig. 5). The 1985 decline of 12
percent accounted for
an 880 billion reduction in farm asset values. Farm real estate debt
decreased by $5.6 billion', indicating that the farm
sector lost $74.4
billion in equity solely on farm real estate.
Nonreal estate asset anct debt
 Fi 4--U.S. Agriculture Bel
19132-85

EquI ty

DLiabnitise

levels both declined, despite an $8.2 billion increase in Commodity Credit

Corporation loans outstanding. The net effect of changing asset and debt
levels was a $78-billion drop in equity in 1985, continuing a trend that
has resulted in an equity loss of $253.7 billion since 1980 (a 30-percent
reduction).

The more rapid decline in 1985 asset values relative to debt levels produced
an increased:debt/asset ratio for the farm sector. This ratio measures the
relative extent to which the sector has borrowed against its assets, or
leveraged itself. Higher leverage suggests greater exposure to risk.

Taken together., these traditional measures give mixed signals of the health
of the farm sector.

High.current income levels result largely from Government outlays to

assist the sector. In an era of proposed budgetary restraint, such
public expenditures may become more difficult to obtain in the future.

The current net cash flow level of the sector indicates moderate disin-
vestment in the sector, as debt and capital expenditure levels decline.

Lower farm asset values and equity in the 1980's suggest a worsening
financial strength for the sector.

However, if farmers had responded more aggressively to the 'expand' and

'buy''signals they received during the late 1970's, the situation could be
much worse today. From 1977-81, real estate assets in the farm sector
 1977=81 and 198145.
Value of Farm Real Estate per Acre,
Figure S. Change in Average

New England
+3 0
+5 0

+19
+27

+47
=24

U.S. average:

Change from 1977 to

1981 (top number)
+37:
1986 (bottom number)
-29: Change from 1981 to
=

changes measured relative

1977 2 100+ All percentage
value acre,
Based on index of average
to 1981 value.
 increased by $272.5 billion, due largely to land values rising in response
to higher current and anticipated future earnings. To an extent, this
increase in asset values represented an expanded borrowing capacity for the
sector, which, unless the farm was sold or borrowed against, remained an
unrealized capital gain. Over this same period, real estate debt increased
by $39.3 billion, suggesting that less than 15 percent of the increased
credit capacity was converted to cash.

In 1985, real estate debt remained at 1981 levels, but the decline in real
estate assets to near 1977 values resulted in a worsening of overall debt/
asset ratios from 16.4 percent at the beginning of 1977 to 24.9 percent by
the end of 1985. The situation would be dramatically worse today if farmers
had borrowed more heavily against their appreciated real estate assets when
they had the opportunity to realize these gains. Many of those using high
debt financing for entering agriculture or expanding during the early
1980's are currently in negative equity positions (technically insolvent)
and are probably experiencing negative cash flows as a result of high
interest payments.

DISTRIBUTION ISSUES

Aggregate farm sector data for 1985 indicate that most farmers had adequate
earnings with which to meet principal and interest payments, reduce debt
outstanding, and meet other financial commitments. However, asset values
declined to such an extent that, on a sector-wide basis, farmers ended the
year more highly leveraged (that is, with higher debt/asset ratios).

In an:era when government policy discussions center on targeting of program

benefits to those with the greatest need, the condition of individual
operators within the sector is as relevant as conditions on a sector-wide
basis. Critical issues involve the distribution of debt and earnings among
farm businesses and farm families:

Were farms generating a large volume of sales better able to meet

financial obligations than smaller scale operations?

o Were .family-size commercial farms in a particularly voine able leverage

oroash.flow position?

o 'Did farmers-in highly leveraged financial positions have sufficient

earnings to meet their cash obligations?

Just asappreciation in land values during the late 1970's was not evenly;
distributed across the country, declines in land values in the 1980's hurt:,
farm operators in the Northern Plains, Lake States, and Corn Belt the most'.
Thosefareas are also most reliant on international markets for the feed and
foodgrains they produce.
o Were farmers in these geographic regions in worse leverage and cash
flow positions than farmers elsewherei
 The decline in land values has also placed farm lenders in
a positon ca con-
siderable risk. As land values fall, existing loans become a higher
of asset value. proportion
Average land values have decreased 29 percent since 1981--a
loan that was 85 percent of 1981 value is 120 percent of 1986 value.

o Are particular lenders exposed to a greater degree of risk in

loan portfolio? their farm

o Are their borrowers more highly leveraged or generating

insufficient
income to service debt and meet other commitments?

Data obtained in the U.S. Department of Agriculture's Farm

Costs and Returns
Survey (FCRS) permit evaluation of these distributional issues.
Financial
information supplied by over 11,000 farm operators show the
following:
Farm cash flow positions improved only slightly during 1985.
Over 55
percent of all farms had positive cash flows, compared with 49
1984. As measured here, net cash flow is the balance remaining percent in
after all
cash obligations, including interest, principal payments, and
family
living allowance, have been deducted from total income from
all farm and
nonfarm sources.

o Overall leverage positions worsened. Debt/asset ratios

0.4 on 21 percent of all farms in 1985, compared with 19 were greater than
percent in 1984.
The percentage of debt held by these highly leveraged farms
62 percent to 66 percent. increased from

o Nevertheless, it appears that much of the sector is not

leverage problems. experiencing
Nearly 40 percent ot all farms were debt-free entering
1986, and another 39 percent had debt/asset ratios less
than 0.4.
An accurate assessment of financial stress can be obtained
flow and leverage measures jointly. by considering cash
Farm operations with low debt levels may
experience little financial stress despite negative cash flows.
heavily leveraged farms feel little stress as long as they generateLikewise,
sufficient
cash income. Financial stress is experienced
most acutely by highly leveraged
farms that generate insufficient earnings to service existing
debt.
The proportion of farms in the most vulnerable posiOon
that is, with
negative cash flows and debt/asset ratios greater than 0.4)
during 1985 from 12.6 percent to 11.2 percent of all farms. decreased

The percentage of reported debt held by these

operators declined from
percent in 1984 to 37 percent in 1985.

This suggests an improvement in the condition of

farms with the most serious
financial problems. An alternative interpretation is that many of the finan-
cially stressed operators abandoned farming during 1985. .

A farm operation is technically insolvent when its debt/asset

ratio is
greater than 1.0, that is, its outstanding debt is greater than
of its assets. Less than 4 percent of the value
all farms were in this position

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13
 Figure 6Distribution oF Farms in Each Sal
Class by Debt/Asset Ratio. January 1. 1986

Na debt
A
1511111k.
"\-,e1 Oebt/ceaet ratio
$5 O. 000 and over ^..e.ai O. 00 0. 40
27 Debt/comet rat
$250. 000 - $499. 999 1 O. 41 - 0. 70
Debt/aoset rat i o
$100. 000 - $249. 999 La et .
0 71 - 1. 00
Debt/osaet ratio
greater than 1. 00
$40. 000 $99. 990 h. `V _
$20. 000 - $39. 999 IN. ,

$10. 000 - $19. 999 ISM&

LQo than $10. 000 111
10 20 30 40 50 50 7 BO 100
Parcnt

as 1986 began, but two-thirds of these Lad financial difficulties compounded

by negative cash flows during 1985.

The incidence of financial stress, as indicated by high leverage and

inadequate earnings to service debt and meet other obligations, differs
widely among farms. The degree of stress experienced appears to vary by
volume of sales, type of farm, and region of the country.

Family-size commercial farms (annual sales of $40,000-$500,000) depend on

farming for most of their income, and seem to be experiencing the greatest
financial stress. Traditionally, farm policies focus on the family owned
and operated businesses. Family-size commercial farms:

o Tended to be more highly leveraged (fig. 6, table I).

Reported 33 percent of farms had debt/asset ratios greater than 0.4,

,compared with 21 percent for all farms (table 2).

o Had negative cash flows on 52 percent of highly leveraged farms in 1985.

Indicated 6.7 percent were technically insolvent, compared with 3.9 per-
cent for all farms, with over two-thirds of these experiencing negative
cash flows.

o Accounted for 38 percent of all farms, but carried 66 percent of the debt.

o Held 45 percent of all farm debt on highly leveraged family size farms.

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14
Table 1--Distribution of farms and operator debt, and percentage of
farms with negative cash flows, by sales class,
type of farms and region, January 1, 1986 1./

Percentage Percentage Negative

Item of all of all cash
U.S. far farm debt flows_

Percent
Sales class:
$500,000 and above 2.1 18.6 26.3
$250,000-$500,000 5.1 18.2 26.0
$100,000-$250,000 14.6 30.7 32.1
$40,000-$100,000 18.4 17.1 42.3
$20,000-$40,000 12.0 5.8 48.4
$10,000-$20,000 11.1 3.4 53.6
Less than $10,000 36.9 6.2 50.3
All 100.0 100.0 44.6

Type of farm:
Cash grain 25.8 37.3 37.9
Field crop 6.0 4.2 53.3
Vegetable & fruit 4.3 5.4 42.0
Nursery 1.5 1.1 20.6
General crop 4.9 4.9 46.6
General livestock 39.1 26.6 48.2
Dairy 11.3 16.7- 45.3
Poultry 2.1 1.6 29.4
Other livestock 5.1 2.5 47.9
All 100.0 100.0 44.6

Region:
Northeast 7.7 4.8 44.8
Lake States 12.8 16.2 49.6
Corn Belt 21.2 23.6 37.6
Northern Plains 9.5 14.1 40.8
Appalachian 14.3 4.8 52.8
Southeast 5.6 4.2 44.4
Delta 4.4 3.7 49.5
Southern Plains 11.2 9.4 45.5
Mountain States 5.8 8.9 47.5
Pacific States 7.4 10.4 39.4
All 100.0 100.0 44.6

1/ Farm operator debt for farm purposes based on 1985 Farm Costs
and Returns Survey.

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15
 Table 2-Distribution of debt owed by
by debt/asset ratio and sales class, farm operators
type of farm, and region,
January 1, 1986 .11

Item Debt/asset rat o

Ov,
- 0.4 .4 - 1.0 : 1.0

Sales class: Percent

$500,000 and above 30.8 54.2 15.0 100.0
$250,000-$500,000 29.7 57.3
$100,000-$250,000 13.0 100.0
29.9 51.1 19.0
$40,000-$100,000 100.0
35.6 45.9 18.5
$20,000-$40,000 100.0
52.9 34.4 12.7
$10,000-$20,000 100.0
34.3 39.1 26.6
Less than $10,000 100.0
49.1 46.6 4.3
All 100.0
33.7 50.2 16.1 100.0

Type of farm:
Cash grain 28.6 53.1
Field crop 18.3 100.0
37.8 43.4 18.8
Vegetable & fru 100.0
37.3 50.7 12.0
Nursery 100.0
44.3 30.7 25.0
General crop 100.0
30.8 47.5 21.7 100.0
General livestock 36.8 46.2 17.0 100.0
Dairy 34.1 55.4 10.5 100.0
Poultry 43.1 47.7 9.2 100.0
Other livestock 54.7 41.5
All 3.8 100.0
33.7 50.2 16.1 100.0

Region:
Northeast 49.7 41.2 9.1 100.0
Lake States 26.3 54.8 18.9 100.0
Corn Belt 27.2
:
56.1 16.7 100.0
Northern Plains 26.0 54.2 19.8 100.0
Appalachian 51.4 34.9 13.7 100.0
Southeast 33.4 51.3 15.3 100.0
Delta 29.2 42.2 28.6 100.0
Southern Plains 47.7 36.4 15.9 100.0
Mountain States 39.0 51.2 9.8 100.0
Pacific States 38.1 51.2 10.7 100.0
All 33.7 50.2 16.1 100.0

1/ Farm operator debt for farm

purposes bA.,d on 1985 Farm
Costs and Returns Survey.

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16
 Farms with sales 00 000 accounted for 2 percent of all
arms, and included a large proportion of high value specialty
crop producers.
In addition, these farms:

o Reported negative cash balances on only 26 percent of farms, even though

68 percent were highly leveraged.

Generally earned sufficient income to service higher debt loads.

Held almost 19 percent of all farm debt.

Farms with sales less than $40,000 had larger income from nonfarm
(to offset any farm sources
sses ). However, operators still reported negative
cash balances on over 50 percent of these farms.
In addition, these smaller
operations:

o Accounted for almost 60 percent of all farms, but owed less than 16
percent of all debt.

o Had a higher proportion of farms with little or no debt.

Cash rain farmers were the most indebted

operators. They accounted for
less than 26 percent of all farms, but carried 37.3 percent of all farm
debt into 1986. Cash grain farms:

o Had over 71 percent of this debt held by highly leveraged

farms.
o Rep--ted 18 percent of debt held by technically insolvent farms.
o Accounted for over 40 percent of debt held by all highly leveraged
farms.
o Had sufficient earnings to meet expenses, as less than 38
percent
reported negative cash balances.

General livestock farms accounted for 39 percent of all farms,

and owed
26.6 percent of all debt. Highly leveraged farms owed
over 63 percent of
the debt held by these farms. In addition, generall livestock
that: farms repor ed

o Insolvent producers held 17 percent of debt.

o Nearly half (48 percent) of these farms failed to
generate positive
cash balances.

Over 53 percent of field crop farms had negative cash balances,

while less
than 21 percent of nuraery producers had negative cash
balances.
The Corn Pelt is the most heavily indebted region of the
country. Farms
in this region carried 23.6 percent of all farm debt into
1986, with almost
73 percent held by highly leveraged farms. Relatively few Corn Belt farms
reported negative cash balances, suggesting the ability to service
higher debt loads. their

17
 Midwest farms (Corn Belt, Lake States, and Northern Plains) held almost 54
percent of all debt owed by U.S. farm operators. Farms is this region have
suffered the greatest land value depreciation in recent years. Over 73
percent of all farm debt in this region was held by highly leveraged farms,
compared with an average of 58 percent for the rest of the country.

A continuation of the decline in land values, combined with the volume of

debt currently outstanding, would worsen of the financial position of
indebted farmers in the future. The potential for increased financi.t.L
stress appears to be greatest for family-size commercial farms, cash grain
and general livestock farms, and farms in the Midwest. To date, Government
programs to support commodities produced by these farms have buoyed incomes
to levels adequate to cover production costs, to service debt, and to provide
for household expenses. A continuation of these policies may be necessary
to maintain sufficient income levels in the future.

AGRICULTURAL CREDIT PROSPECTS

While highly leveraged farms are at considerable risk, the potential impact
of their inability to meet financial obligations could devastate lenders
providing farm credit.

As 1986 began, technically insolvent (debt/asset ratio greater than 1.0)

farms accounted for fewer than 4 percent of all farms, yet they owed more
than 16 percent of the outstanding debt, and approximately two-thirds of
them reported negative cash balances.

Highly leveraged farms (debt/asset ratio greater than 0.4) farms accounted
for 21 percent of all farms, but owed two-thirds of all farm debt. Forty-
seven percent of these farms reported negative cash balances.

The distribution of lender-held debt, by leverage position of borrowers,

suggests that most lenders' portfolios are at some risk (table 3). FCRS
results indicate that:

o Over 84 percent of Farmers Home Administration (FmHA) debt is held by

operators with debt/asset ratios greater than 0.4, with over 35 percent
held by technically insolvent operations.

o Less than 11 percent of Farm Credit System debt (Federal Land Banks
and Production Credit Associations) is held by technically insolvent
operations.

o Over 65 percent of Farm Credit System debt, however, is owed by bor-

rowers with debt/asset ratios greater than 0.4, suggesting a potential
for debt repayment problems in the future.

Differing credit control measures among lenders is changing the market

share relationships among traditional farm credit suppliers (table 4).
During 1985:

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18
 Table 3--Distribution of lender held debt by debt/asset ratio
January 1, 1986 1/

Deb asset
Lender Less than : :Greater
0.4 : 0.4 - 1,0_;_than 1.0 Total

Percent

Commercial banks 38.7 47.6 13.7 100.0

Federal Land Banks 32.5 56.9 10.6 100.0
Farmers Home Administration : 15.4 49.3 35.3 100.0
Production Credit Association : 42.0 46.2 11.8 100.0
Commodity Credit Corporation : 32.1 54.0 13.9 100.0
Other individuals 39.9 47.9 12.2 100.0
Life insurance companies = 39.9 48.6 11.5 100.0
Merchants and dealers 41.2 41.0 17.8 100.0
Other farmers 27.2 47.1 25.7 100.0
All 33.7 50.2 16.1 100.0

1/ Farm operator debt for farm purposes, based on 1985 Farm Costs and
Returns Survey.

Table 4--Lender shares of farm debt, excluding CCC loans

January 1 1

Lender 1986 1985

Percent

Commercial banks 29.6 28.6

Federal Land Banks 23.9 25.3
Farmers Home Administration 16.2 13.7
Production Credit Association 8.4 10.0
Other individuals 12.0 14.5
Life insurance companies 6.8 6.0
Merchants and dealers 1.8 1.9
Other farmers 1.3 NA

NA = Not asked in 1985 FCRS.

1/ Farm operator debt for farm purposes based on 1985 Farm Costs and
ieturns Survey.

-13-

19
 The Farm Credit System reduced the level of its
outstanding loans,
experiencing a decrease in market share from 35.3
CCC debt to 32.3 percent over the 1985 calendar percent of all non-
year.
FmHA share increased from 13.7 percent to 16.2
percent. Credit denial
by private lenders has increased the role of the
stration in providing financing for those unable Farmers Home Admini-
to obtain it elsewhere.
o Commercial bank share of debt increased from 28.6
cent. Bank reports support this survey finding, percent to 29.6 per-
suggesting that banks
are lending to former Farm Credit System borrowers,
estate as collateral for short-term loans. requiring real

Generally, lenders appear to be continuing

their borrowers, encouraging them to reduce to impose credit restraint on
spending. their debt and limit capital
Changing market shares suggest a shift from the
System to either commercial banks or the Farmers Farm Credit
Home Administration,
depending on the credit-worthiness of the individual
borrower.

CONCLUSIONS
While 1985 was a relatively high income
year for agriculture, the farm
sector is still under a great deal of financial
stress. Family site commer-
cial farms, particularly cash grain and general
livestock farms in the
Midwest, have experienced an erosion of asset values.
and the institutions that provide them credit, This exposes them,
risk. So far, Government purchases and direct to an increasing level of
tight cost control measures, have allowed payments, accompanied by
a cash flow adequate for their obligations.many of these producers to maintain
Continued Federal Government
involvement may be necessary as the sector adjusts
and possibly further declines in asset values. to lower commodity prices

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*U.S.GOYERNMENT PRINTING F CE11996-160.916,40231/ERS